The Indian government may consider raising the GST on cigarettes and other tobacco products once the compensation cess is discontinued, according to a report by Economic Times.
Current Tax Structure and Proposed Changes
At present, the cigarette and tobacco products are being taxed at 28% with a cess added to this to a total of 53% indirect taxation.
Officials are discussing the possibility of increasing GST to the highest permissible 40% and introducing an additional excise duty to maintain stable tax revenues once the compensation cess ends on March 31, 2026. The government is not in favor of replacing the cess with a similar tax.
Government Deliberations on Future Taxation
A ministerial committee of the GST Council is deliberating the course of action with the cess of compensation by 2026 and is set to recommend a report to the council.
Tobacco products, being ‘sin products’ per se, are already laden with a number of charges like the Goods & Services Tax (GST), base excise duty, cess of compensation, and National Calamity Continguent Duty (NCCD). With the current 53% taxation also being lower compared to the 75% suggested by the World Health Organization (WHO),
Tobacco products are a major taxation generator with ₹72,788 crore contributed by them during 2022-23 according to the Economic Times.
One alternative being mooted is a ‘cess on health’ to replace the cess on compensation, although opposed by some states. It was recommended by a Group of Ministers (GoM) on taxation of tobacco that the cess component could be made to attach to the highest retail price of the product rather than the value of sales.
The GST council is considering the issue of if the cess on tobacco can be added to current taxation slabs or if a separate taxation slab can be introduced to raise sustained revenues to the government.
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Source: Moneycontrol
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